JPMorgan Quant Says Buy Bank Puts Before Jobs Data, French Polls

  • Softening of U.S. economic jobs data warrants caution: Quigg
  • Bank advises buying financial ETF puts, Treasury ETF calls

Investors should buy put options on an exchange-traded fund of financial shares before Friday’s U.S. jobs report and the upcoming French presidential election on Sunday, according to JPMorgan Chase & Co.’s quantitative and derivatives strategy research team.

“If Friday’s payroll report disappoints, the back-to-back weaker results may cause investors to further question the economy’s momentum,” Shawn Quigg and Marko Kolanovic, New York-based research strategists at JPMorgan, wrote in a report dated May 2. “We see greater reward-risk of positioning for a disappointing result.”

Traders will be closely watching the monthly employment data after weaker growth figures for the first quarter in the U.S. and a decline in Chinese manufacturing cast doubts on the strength of the global economy. Less-than-expected jobs growth could trigger a selloff in financial stocks, with French elections providing investors another reason to reduce risky bets, the strategists wrote.

Here are the two trades they highlighted:

  • Buy Financial Select Sector SPDR Fund (XLF US) May 5 $23.50 puts and/or iShares 20+ Year Treasury Bond ETF (TLT US) May 5 $122 calls.

Expectations are for an addition of 190,000 jobs in April, but the whisper number is currently below that, at 177,500. The Federal Reserve is expected to leave policy untouched on Wednesday.

“Over the last few weeks, we have witnessed a softening in U.S. economic results,” the JPMorgan analysts wrote. “The most notable include the large downside surprise in the March core CPI and change in non-farm payrolls.”

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